Apple, Google Take Over Big Brother Role

NEW YORK (TheStreet) -- Like everyone else, I love Google (GOOG - Get Report). I use Google searches constantly (no Bing for me), and this article is being transmitted to this Web site via the wonderful email system known as Gmail. I love Apple (AAPL - Get Report) almost as much, not because I own one of its computers or iPhones, but because I seem to have tons of Apple software on my PC whether I like it or not. So let's be clear on that. I love Google! I love Apple! I love Big Brother!

Oh, I'm sorry, did I let something slip? The reason I accidentally confused these two fine companies with something out of Orwell is because of yesterday's hearing before the Senate Judiciary Committee. See, a wee problem has arisen concerning the privacy practices of these two companies, as it relates to user data they collect from users of smartphones, which are the proud home of Apple and Google software.

The problem is that their privacy practices suck eggs. What sucks even more is that nothing much has been done to get these companies' cotton-pickin' hands off our private data.

According to the Federal Trade Commission, 27% of cell phone users have a smartphone. Apple keeps a record of where your iPhone has been for the past few months. Google's Android operating system snoops on your location every few seconds.

"In the complicated mobile ecosystem," the FTC's Jessica Rich said in her prepared testimony yesterday, "a single mobile device can facilitate data collection and sharing among many entities, including wireless providers, mobile operating system providers, handset manufacturers, application developers, analytics companies and advertisers." And what do you get out of all this data collection? The privilege of being targeted by location- and user-specific advertising -- and whatever use the aforementioned "entities" wish to utilize.

A study by Pew Internet, cited by the FTC in its testimony yesterday, found that Apple has been collecting geolocation data from mobile devices over time, and has been storing it on users' computers and handhelds. The Wall Street Journal reported recently that marketers are able to track your age, gender and other characteristics, and basically follow you around whether you like it or not.

Even if you don't have a phone, Google has already gotten in trouble with the FTC over the introduction of its atrocious, unwanted "Google Buzz." Whether you liked it or not, the FTC contends, Google used Gmail users' associations with their frequent email contacts without their consent. A settlement is in the works, the FTC said in its testimony, under which Gmail would mend its ways. The FTC, like its brethren the Securities and Exchange Commission, doesn't have the power or interest to do much more than force companies like Google to promise to change their ways.

What else has been done? Well, in addition to the hearing yesterday, at which the senators in attendance wagged fingers at Google and Apple -- and the latter two companies said they were as pure as the driven snow -- you'll be pleased to know that the FTC has been doing a lot. Why they've been having all kinds of roundtables, that's what they've been doing. Their purpose has been to determine how changes in the marketplace have affected consumer privacy and whether the law has kept up with these changes.

They've done a lot more than that, by cracky. The FTC has issued a "preliminary staff privacy report," having all the moral force of an inside story in the business section of the old Baltimore News-American. It produced a handful of weak-kneed recommendations, such as companies must provide "simpler and more streamlined privacy choices to consumers."

Cell phone and computer users have a tough enough time defending their privacy as it is -- given the spate of "phishing" and other computer crimes -- that I'm having a hard time understanding why there isn't at least lip service being paid to taking tougher action against companies that don't respect the public's privacy.

To be sure, none of the reports about Google and Apple hit the depths of sleaziness that have been achieved by Overstock.com ( OSTK - Get Report) and its bizarre CEO, Patrick Byrne. A year and a half ago, he was caught in a pretexting scandal, in which a Byrne employee tried to spy on critics of the CEO by creating a phony identity and "friending" them on that other privacy offender, Facebook. The reaction? Nothing. No FTC action, not even lip service, and nothing was done by the SEC, which has an ongoing investigation of Overstock. Facebook revoked the account of the Byrne employee, but has since reinstated him.

Byrne, a free-spending political donor -- he just bought naming rights to a stadium in Oakland, where his company is being prosecuted for consumer fraud -- has probably slipped through the net. But the Big Brethren at Google and Apple remain in denial. At the beginning of the hearing yesterday, Minnesota Sen. Al Franken said consumers "have a fundamental right to know what data is being collected about them." But what if the companies won't change their policies? An Apple VP testified yesterday that the company "is deeply committed to protecting the privacy of our customers."

That's great. Let's put these companies to the test. If they're caught violating customer privacy, don't throw a "staff report" or "roundtable" at them. Throw the book at them.

Gary Weiss has covered Wall Street wrongdoing for almost a quarter century. His coverage of stock fraud at BusinessWeek won many awards, and included a cover story, �The Mob on Wall Street,� which exposed mob infiltration of brokerages. He uncovered the Salomon Brothers bond-trading scandal, and wrote extensively on the dangers posed by hedge funds, Internet fraud and out-of-control leverage. He was a contributing editor at Conde Nast Porfolio, writing about the people most intimately involved in the financial crisis, from Timothy Geithner to Bernard Madoff. His book "Born to Steal" (Warner Books: 2003), described the Mafia's takeover of brokerage houses in the 1990s. "Wall Street Versus America" (Portfolio: 2006) was an account of investor rip-offs. He blogs at garyweiss.blogspot.com.

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